The evolving source of development funding

Once in the shadows, non-bank lenders have moved into the mainstream development funding lending ecosystem, but now regulated and with clearly defined appetite to support.

No longer viewed as the lenders of last resort for unbankable developers, non-bank lenders are now the go-to lenders for experienced developers who want a better and more agile service.  

For someone like me who has spent the past 25  years or so working in the development arena, it’s been fascinating to watch the evolving source of development funding move from banks to challengers and now to specialist non-bank lenders.

Back in the pre-2008 era, high street banks were the safes, and pretty much only, source of funding for developers looking to build homes.

But then around 2010 the concept of the challenger bank was born bringing with it the ideology of hyper-specialist lending divisions in a bid to differentiate from the high street banks, who had become increasingly risk adverse and rigid within their appetite to lend, the era of computer says no, as it was following 2008. 

Over the proceeding period, challengers pretty much dominated the development lending space while specialist non-bank lenders remained in the shadows and were mainly used to service unbankable developers, developers who due to their lack of experience, credit profile, or both, would have been undoubtedly and unceremoniously turned down by high street and challenger banks.

Back then, no self-respectable developer would openly admit to having to borrow from a non-bank specialist development finance lender. 

However, and in simplistic terms, small challenger banks grow into big banks and development funding, arguably the most specialist of all sectors, got consumed and absorbed within a much larger banking beast and the layers of reporting and risk analysis that go with it.

This is exactly the point where the borrower journey at challenger banks began to change and uncertainty of support and appetite crept in. 

In recent years, the development funding market has again evolved, this time splintering away from banks altogether to create truly nimble specialist non-bank lenders, focusing purely on supporting development funding with teams of highly experienced, through the cycle decision makers.

Non-bank lenders have positioned themselves at the centre of the lending ecosystem, but now regulated and with clearly defined appetite to support.

They have clearly stepped in to fill the gap left by banks and other traditional lenders who have seen their appetite cut back due to the current market environment.

Once dismissed as the lender of last resort, specialist non-bank development finance lenders are now fully established as respectable mainstream lenders. 

In my mind, there has been a clear shift in developers’ perception of specialist non-bank lenders and their increasing willingness to work with them.

Specialist boutique lenders like Blend are no longer viewed as lenders of last resort.

Instead, they are the smart and agile lenders who can move quickly, deliver what they say they would and help developers get deals across the line.

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